American Apparel Begins Layoffs; Charney Aims For Reinstatement

“This Is A Very Sad Day”

Counselor Top 40 supplier American Apparel (asi/35297) announced this week that it will be laying off about 180 employees, which will impact about 1.8% of the company’s 10,000 worldwide employees. Paula Schneider, American Apparel’s new CEO, told The New York Times that the cuts are part of the company’s efforts to turn around its profitability.

“This is a very sad day,” Schneider said. “It’s very challenging to go down this route. But we have to conduct business differently in order to survive and to thrive. If we continued down the same path, we’d get the same results.”

While American Apparel says it hasn’t turned a net profit since 2009, sources close to the company told Counselor this week that it has achieved positive EBITDA every year except one since 2009. However, the job cuts do come at a tumultuous time for the trendy apparel retailer and wholesaler. Just this week, the company’s founder and former CEO, Dov Charney, said he plans to sue American Apparel for upwards of $40 million in damages. He was fired from the company in December amid allegations of misconduct, but Charney has vehemently denied those allegations and is now seeking nearly $6 million in severance, $1.3 million in unpaid vacation days, at least $10 million for emotional distress and 13 million shares of American Apparel, according to a letter from his attorney Keith Fink. Further, American Apparel disclosed last week that the Securities & Exchange Commission has opened an investigation into the circumstances surrounding Charney’s firing from the company.

American Apparel said that it suspended Charney in June and then officially fired him in December following an independent investigation into his actions as CEO. However, Charney and his lawyers contend that the investigation was a sham and was just part of a plot to get him fired. “The board's investigation into Mr. Charney's suitability to be reinstated as CEO or an employee of the company was a complete sham,” Charney’s lawyer wrote in a letter dated December 22. “The board delegated the running of the investigation to the same lawyers who made the initial recommendation to fire Mr. Charney in June. The sole purpose of the investigation was to justify the initial termination decision, which was completely groundless. The board denied Mr. Charney any reasonable opportunity to respond to the so-called charges against him or to test the facts upon which the charges were based.”

Now, Charney says he’s on a mission to regain control of American Apparel. “I've had a minute being on the outside to re-strategize how I want to take the company, you know, control of the company again, and I intend to,” Charney told ABC News’ 20/20 show this week.

In a bright spot for American Apparel, the company recently reported to Counselor that its 2014 North American ad specialty sales were $105 million, a year-over-year increase of about 6%. On its Top 40 list, Counselor currently ranks American Apparel as the 14th-largest supplier in the industry.